VWgets Rs 664 cr for Pune plant

Loan approval marks EIB’s first direct exposure to a plant in India.

The board of Luxembourg-based European Investment Bank (EIB) today approved a ¤100 million (Rs 664 crore) loan to Volkswagen India to part-finance its ¤580 million (Rs 3,900 crore) investment in India. This investment by Volkswagen India will be for its new plant in Pune in Maharashtra that will have a capacity to produce 110,000 cars a year at full capacity.

VW India had formally inaugurated the plant on March 31. It is expected to start commercial production by May this year.

A VW India spokesperson said the inauguration of the plant did not mean that the proposed investments had been completed. “There is no contradiction between the fact of inauguration and a loan under progress. An investment process is not finished with an inauguration. As you know, we will start production in May (2009) with the Skoda Fabia, followed by the Volkswagen Polo in the beginning of the next year and a Volkswagen sedan in the second half of 2010,” said a VW India spokesperson in an e-mail response.

The group entered the Indian market in 2001 with Skoda and followed this with the launch of its premium and luxury brand, Audi, in 2004. The entry of the mother brand, VW, was finalised in 2006 with plans to set up a new plant in Chakan near Pune.

The approval of the loan to VW India will mark the European bank’s first major direct investment in a plant in India. EIB’s exposure in India has until now been dominated by support to EXIM Bank. In December 2008, EIB approved a ¤150 million loan to EXIM Bank to support energy companies’ investments in renewable energy projects. EIB’s first exposure in India dates back to 1993, when it supported Power Grid Corporation’s effort to upgrade the national grid.